Monday, February 05, 2007

Traffic volume at Airports to Rise

KUALA LUMPUR: It's no big secret that Malaysia Airports Holdings Bhd (MAHB), a unit of Khazanah Nasional Bhd, has been struggling to improve its performance for some time.

But all is not lost for the airport operator as lady luck might be on its side.

Come July, budget airline AirAsia X, owned by Fly Asian Xpress (FAX) will be introducing its long haul service from here to places like Manchester, Britain, Melbourne, Australia, Tianjin and Hangzhou in China and later to India and Europe as well as other destinations.

Moreover, Jetstar, a fully owned Qantas subsidiary is expected to start its Sydney - Kuala Lumpur flight operations by September.

Analysts expect traffic flow and volume at the airports managed by MAHB such as Kuala Lumpur International Airport (KLIA) to be buzzling, especially when more destinations are introduced - by AirAsia X and other carriers over time.

Mayban Securities stock broking strategist Wan Mohamad Fakruddin Razi said traffic and volume at KLIA and other airports managed by MAHB would definitely increase.

AirAsia X will operate in July with flights to China, India and Europe
“However, it's important to see how MAHB's manages to capitalise on the additional traffic to improve revenue,” Fakruddin said, adding that MAHB restructuring exercise had been progressing well but has yet to improve its bottom line.

For the nine-months ended September 30, 2006 MAHB posted RM188.14mil pre-tax profit, compared with RM250.93mil in the corresponding period a year earlier.

He said MAHB would require more time to improve as the airport operator was grappling with structural as well as financial problems within the company.

“But MAHB is moving in the right direction by focusing on its core business - airport management, expanding operations overseas and stripping off non-core assets to reduce its government debt,” he said.

In November 2006, MAHB proposed to pay its debt by selling off Sepang International Circuit at a purchase price to be set-off against the concession fees due to the Government.

Also, under the proposed restructuring MAHB aims to secure its first rise in landing and parking charges in 25 years and first rise in passenger fees in 10 years. It also involves shedding some non-core assets.

“The authorities are reviewing our proposal and the decision could be out soon,” said an MAHB official.

Chris Eng
The airport operator owes RM840mil in concession fees for KLIA, which has an annual capacity of about 25 million passengers.

“MAHB should emerge leaner, stronger and more focused after its restructuring,” Fakruddin said, adding that investors would be looking at the stock only when it shows a few quarters of improved results.

He said the company had good potential, especially if MAHB seized the opportunities coming its way.

OSK Research manager Chris Eng agrees that MAHB was on track to recovery but would need more time to show better results.

“MAHB’s longer-term outlook seems promising but it has to deal with several issues first,” said Eng, adding that the airport operator had yet to get the Government nod to increase landing and parking charges as well as passenger fees.

Moreover, he said MAHB had to lower its debt while looking for funds to finance the expansion of the low-cost carrier terminal to cater for AirAsia X long haul budget growth plans and other airline carriers.

“There's a lot going on MAHB's plate and a lot would depend on how it manages the changes occurring within the industry,” said Eng, adding that the airport operator was also looking to expand abroad to boost revenue.

Last November, MAHB submitted a plan to upgrade and manage the King Abdulaziz International Airport's Hajj Terminal in Jeddah, Saudi Arabia.

The bid, said to be worth about RM200mil, was submitted via a joint venture with MAHB's sponsor in Saudi Arabia, the Arabian Co for Water & Power Development.

MAHB also submitted a bid to build and manage an international airport in Jordan for US$200mil and is eyeing similar opportunities in Oman.

Good exposure to VMY theme play

MAHB provides one of the best exposures for theme play in Visit Malaysia Year 2007, said SJ Securities Sdn Bhd.

The brokerage maintains an overweight rating on the airport operator and expects it to benefit from the projected increase in tourist arrivals.

The brokerage fairly values the stock at RM2.75 per share, an upside of 20% from its current trading price of RM2.29 (last Wednesday’s closing price).

“The fair value represents a 14.6 times forward PER (price-to-earnings ratio) which we believe is reasonable,” SJ Securities said, adding that the introduction of passenger security charges with effect from Jan 15, 2007 could boost MAHB’s bottom line by RM65mil.

MAHB announced last month that it would impose security charges of RM3 and RM6 on domestic and international passengers respectively, at all its airports with effect Jan 15. “We continue to remain positive on MAHB's long-term fundamentals on the back of Asian tourism growth and its monopoly position. Other catalysts to boost the group's earnings include hikes in other airport surcharge such as landing and ground handling charges and higher-than-expected tourist arrivals,” said SJ Securities.

It estimated that MAHB’s net profit would decline to RM165.9mil in its financial year ended Dec 31, 2006 (FY06) from RM182.3mil previously, before rising to RM208mil in FY07.

Source : STAR
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